EUR/USD faces some selling pressure to near 1.0800 as Trump trades continue to rally
|- EUR/USD softens to near 1.0805 in Wednesday’s Asian session, down 1.06% on the day.
- Trump trades continue to strengthen as Trump is leading in the US presidential election.
- The ECB’s large rate cut bets diminished after upbeat Eurozone Q3 GDP growth data.
The EUR/USD pair falls to around 1.0805 during the Asian trading hours on Wednesday. The Greenback gains momentum as the voting favoredd Former US President Donald Trump in the US presidential election.
Polls are closing in 15 states, including the battleground states of Arizona, Michigan and Wisconsin. Trump is doing better in rural areas, while Kamala Harris is doing better in the suburbs than Biden. Trump trades continue to strengthen, supporting the US Dollar (USD) against the Euro (EUR).
Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Bank's New York branch, said, "Right now the mood seems to be going in favor of Trump," Englander said. "On the other hand for most of October and into the beginning of November the Trump trades were stronger dollar and higher yields,” added Englander.
The US presidential election will be the key event for the USD dynamic this week. However, investors will shift their attention to the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Thursday.
Across the pond, the upbeat Eurozone Gross Domestic Product (GDP) data prompted traders to pare bets supporting a larger-than-usual interest rate cut in the December policy meeting. The markets expect the ECB to cut the Deposit Facility Rate again in December by a usual size of 25 basis points (bps). Investors will keep an eye on the speeches from the ECB's President Christine Lagarde and Vice President Luis de Guindos later on Wednesday.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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